The Bombay High Court has held that statutory interest on a service tax refund becomes payable upon the expiry of three months from the date of the original refund application and cannot be postponed merely because the taxpayer’s entitlement was subsequently confirmed by an appellate tribunal.
The Bench of Justice M.S. Karnik and Justice Sandesh D. Patil ruled that a later communication submitted after a favourable order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) could not be treated as a fresh refund application when it was only a continuation or reminder of the original claim.
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The bench consequently set aside an order denying statutory interest on a refund of Rs.53.05 lakh and directed the Central Goods and Services Tax authorities to grant interest from August 20, 2015 until the date of the actual refund.
The petitioner/assessee challenged an Order-in-Original insofar as it denied statutory interest under Section 11BB of the Central Excise Act, 1944, read with Section 83 of the Finance Act, 1994.
The dispute related to a refund amount of Rs.53,05,173, which was paid to the company on June 23, 2026.
The company had originally submitted its refund application on May 20, 2015. However, its entitlement to the refund was eventually recognised by CESTAT through an order dated December 8, 2025.
Following the tribunal’s order, the company addressed a communication dated January 5, 2026 to the department. The tax authority treated this communication as the relevant refund claim and denied interest for the earlier period.
The company argued that the communication dated January 5, 2026 was not an independent refund application under Section 11B of the Central Excise Act.
It was submitted that the letter was merely a continuation or reminder of the refund claim originally filed on May 20, 2015. Since the refund was not granted within three months of that application, interest became payable from August 20, 2015.
The company relied upon the Supreme Court’s ruling in Ranbaxy Laboratories Ltd. v. Union of India, which clarified the point from which interest under Section 11BB begins to run.
The taxpayer accordingly sought interest from August 20, 2015 until June 23, 2026, when the refund amount was actually paid.
The department contended that the refund arose as a consequence of CESTAT’s order dated December 8, 2025. According to the department, the company filed its refund claim against that order through the letter dated January 5, 2026.
The department maintained that interest under Section 11BB would arise only when the refund was not released within the prescribed period following the order granting the refund.
It, therefore, opposed the company’s demand for interest calculated from three months after the original application filed in May 2015.
The High Court examined Sections 11B and 11BB of the Central Excise Act and Section 83 of the Finance Act, which makes the relevant excise provisions applicable to service tax matters.
Referring to the Supreme Court’s decision in Ranbaxy Laboratories, the Bench observed that interest under Section 11BB becomes payable when the refund is not released within three months from the receipt of the application submitted under Section 11B(1).
The Court noted that the explanation to Section 11BB creates a legal fiction under which a refund order passed by an appellate authority or court is deemed to be an order under Section 11B(2).
However, this deeming provision does not postpone the date from which interest becomes payable. The date of the appellate decision confirming the refund is, therefore, not the starting point for calculating statutory interest.
“In this case also the interest payable was from expiry of three months from the date of filing of the application till the date of refund under Section 11B of the Excise Act and not from the date of favourable order passed by the Appellate Tribunal,” the Court observed.
The High Court held that the tax authority had committed a serious error by treating the company’s January 5, 2026 communication as the refund application.
The original refund claim had been filed on May 20, 2015, while the January 2026 letter was only a continuation or reminder issued after CESTAT allowed the claim.
Accordingly, the later communication could not replace the original application for determining the commencement of interest under Section 11BB.
The Bench quashed the March 24, 2026 order to the extent that it denied statutory interest on the refund of Rs.53,05,173.
The Court directed the department to grant statutory interest on the refund amount from August 20, 2015 until the date of the actual refund. The direction is required to be complied with within eight weeks from the date of the judgment.
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